What happens when FTT are not persuaded by the agreement reached between appellant and defendant on the nature of a supply?
Jan Garioch CA discusses a recent case, RPS Health in Business Ltd/RPS Consulting Services Ltd v HMRC, which saw the FTT tackle RPS’s submission that in its occupational health business it made single composite supplies which were standard rated.
Concerns on the reliability of evidence
In a decision running to almost 100 pages, the First Tier Tribunal recorded their deliberations on RPS Health in Business Ltd and RPS Consulting Services Ltd v HMRC(RPS). A key reason that the decision was so long is that the Tribunal clearly did not find it easy to find the truths underlying this case. It is uncomfortable to read of some witnesses ‘being reluctant to give straightforward answers which might not help their employer’s case’ and giving evidence ‘which is not borne out by documentary evidence’.
No Tribunal should have to report that both Counsel and witnesses sought to avoid an adverse conclusion by submitting unreliable evidence. The fact that this decision has been published at a time of crisis caused by global pandemic makes this feature of the case particularly unedifying.
Challenges caused by flip flopping positions
A succession of events ramped up the difficulty for the Tribunal in getting to grips with the arguments in addition to the unreliability of the evidence. The appellant made a failed last minute attempt to change their position after skeleton arguments had been filed, HMRC tried to change position on the last day of hearing before accepting they had to withdraw that new argument and the Tribunal found deficiencies in the bundles provided to them even though they ran to over 1400 pages.
FTT’s power to decide an issue not in dispute
The disputed point in this case was the correct VAT liability of the wide range of occupational health services provided by RPS. These included medicals, health surveillance, vaccinations, sickness absence management and drug/alcohol testing. Over time the parties had varied their positions on the correct analysis of VAT liability, but at the point the hearing commenced it was common ground for both RPS and HMRC that, with some minor exceptions, RPS made a single supply of services. HMRC submitted that single supply was exempt and RPS submitted it was standard rated.
Furthermore, they jointly submitted that the Tribunal could not consider the single/multiple supply question as the adversarial nature of the Tribunal’s jurisdiction meant it had no power to decide an issue which was not in dispute, but required it to restrict its decision to whether that single supply was exempt or standard rated. The Tribunal baulked against this attempt to narrow their focus and stated that they could not decide an appeal on a basis which they considered to be wrong in law.
They referred to the case of Tower M’Cashback v HMRC [2011] UKSC 19 which concerned direct tax but found the basic principle set out there must be the same when considering VAT. Consequently, the Tribunal has to have regard to the public interest, and for that reason cannot decide an appeal on a basis which it considers to be wrong in law, even though both HMRC and the taxpayer are in agreement on the point.
Multiple supplies v bespoke single supplies
The Tribunal identified the two key VAT issues for them as the meaning of single supplies and the exemption for medical care. On the first point, they found that neither Counsel was able to put a coherent and consistent case for RPS making a single supply because it was not possible to fit the facts to that submission. Instead, the Tribunal found that where RPS provides an occupational health practitioner to deliver a range of services for a fixed price from an onsite or mobile clinic, this is a multiple supply. For the remainder of its services, RPS provides separate single supplies on a bespoke basis.
Application of medical exemption
Turning to the second question of VAT liability of these supplies, the Tribunal was again unimpressed by the arguments presented by both counsels. Counsel for RPS painted their service as a single supply of advice and information to clients’ management. The Tribunal rejected this, finding that the typical client’s main purpose is protecting employees’ health and RPS’s own policy stated its focus was to protect the health of employees. Counsel for HMRC contended that RPS provided a single supply of which the predominant element was sickness absence management (SAM) to support employees’ recovery from health problems. The Tribunal rejected this because not all clients wanted SAM.
In addition, HMRC’s submission was based on unreliable evidence of the percentage of client spending on different services. The Tribunal found it clear from its own detailed analysis that the services provided by RPS are almost all for the purpose of ‘the protection, including the maintenance and restoration, of employees’ health’, thus qualifying for exemption. The exceptions are ill health retirement medicals, medico-legal services, administration charges and training courses. All of those exceptions were only available on an as required, bespoke basis.
Decision in the alternative if FTT wrong on its powers
The Tribunal also made a decision in the alternative, if they were wrong in their conclusion on the single/multiple supply issue. If they did not have the jurisdiction to decide on a different basis from that put forward by either party, they would have found RPS to be making a single supply of services within the scope of medical exemption.